Do we need to ask permission?

So we've decided on Leo if this baby is a boy. My MILs father was named Leo. He died when she was young so she doesn't remember him and my husband never met him. We're not using it as an honor name but do we still have to say something like a disclaimer or ask her if it's okay? We're hoping to avoid telling her the baby name whether it's a girl or boy due to all the headache with our first.

No, not permission but you should give a heads up. When you say nothing then you leave room for speculation (e.g. you're honoring your MIL via using her dad's name). Tell her a few names that you like and toss in some names that you've never actually considered just to throw her off. Include Leo in the list and say you like it because [insert every reason except MIL's dad]. This way she knows for a fact that this name is not about her.

Sorry, I don't quite understand. Did her father do something bad or she just doesn't remember him? If the latter, it's nice and maybe she'd better think you love Leo as a family name too. At least, just toy with Leo and your back up name(if you have such) and then just go with Leo.
P.S. By the way, Leo is wonderful.